Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting

This paper establishes empirically the existence of specialization in private‐market corporate lending, adding a new dimension
to the public versus private debt distinctions now common in the literature. Comparing corporate loans made by banks and by
finance companies, we find that the two types of intermediaries are equally likely to finance information‐problematic firms.
However, finance companies tend to serve observably riskier borrowers, particularly more leveraged borrowers. Evidence supports
both regulatory and reputation‐based explanations for this specialization. In passing, we shed light on various theories of
debt contracting and intermediation and present facts about finance companies.